The challenges faced by policy makers are to allocate limited resources across the range of preferences that contribute to poverty reduction and human development; including capital expenditures on health, education, infrastructure and recurrent expenditures. With the scarce resources, it is very important to allocate the resources in more efficient way. However, there are doubts about efficiency of public health expenditures in several countries. To clarify such doubts, this study is based on the investigation of the relationship between public healthcare expenditure with infant mortality rate of SAARC countries. Panel data of SAARC countries is used in this research study from the year 2002 to 2014 with focus on Pakistan. Existing literature reveals the significant relation between public health expenditure with infant mortality, but there is a debate on the impact of public health expenditure on infant mortality, some countries have more public health expenditure but the health outcomes are low as compared to those countries where the public health expenditure are low but having improved health outcomes. The difference of opinion in literature about public health expenditure impact on infant mortality rate could be because of poor methodology, in panel data, there are more chances of aggregation bias and OLS type regression cannot remove the aggregation bias. Empirical Bayesian methodology is used in this study to overcome aggregation bias. In Empirical Bayesian the estimates of the model parameter are calculated by taking an average of individual country which helps in capturing the country heterogeneities and the prior which highlights the commonalities of the specific geographical region. The results of study reveal a negative impact of health expenditure on infant mortality in SAARC countries. Increase in 1 unit of public health expenditure is associated with the reduction of 0.08 unit infant mortality rate in SAARC countries. Supervisor:- Dr. Atiq-ur-Rehman